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Life insurance

post #1 of 37
Thread Starter 
So now that DH has a job we're a little more financially stable and can start to think about things like life insurance... I'm assuming we need some coverage, right? DH works full-time & I work from home (making 40% of our income), plus I'm DS's full-time caregiver, so I believe we'd need coverage for both of us? Where do you go to shop for life insurance? I feel like in many ways it's a scam so I want to be careful to not be sucked in for more than we need but still want to make sure we have an adequate amount of coverage. And how much does it usually cost per month? We don't have a ton of money leftover each month so I'm not sure we can even afford to do this...
post #2 of 37

We have ours though our Car ins. company which is State farm we have a 250k life inc. and have a rider with all three of our kids and pay about $25 a month.

post #3 of 37
Thread Starter 
Hmm that's not quite as expensive as I expected I guess. :-/

State Farm doesn't offer insurance in my state. I don't really know where else to look! And do I need whole life, term life, or something else????
post #4 of 37

Check out http://www.term4sale.com/ to determine how much a policy could run in your state and get some recommendations for people who sell it.  Definitely get term life insurance for both you and DH because like you said, if something happened to you, DH would need to replace the functions you care for in the home.  You want to aim for at least 10 times the amount of yearly income you have in life insurance.  There are a couple of good calculators at http://www.term4sale.com/calculators.php to give you an idea.  Also think about adding to life insurance if you intend to pay for your kids educations (college) so that would be cared for too, not just income for day to day.

post #5 of 37

Suze Orman recommends having 20 times your income. She also recommends going to SelectQuote.com to get the best price for your term life insurance.

 

If your DH died, do you think you could still work enough to get 40% of the income? If not, then it would be good to insure him for 20 * 100% income. It's 20 times the income so that you can live off the interest and not touch the principal at all.

 

For yourself, you could insure yourself for 40% of income * 20 plus however much per year it would cost for caregiver costs times the number of years your children would require childcare.

 

For example: 40% of income * 20 plus (36,000/yr for a nanny * 15 years) = total

 

The folks at SelectQuote can help you try to figure things out as well.

 

Keep in mind that minors cannot inherit money directly so if for the secondary beneficiaries you may want to set up a living revocable trust or have another adult you trust to take care of your children.

 

post #6 of 37

You want term life.

 

We have 20 year policies. We wanted the policies so we can ensure the surviving spouse can still continue to raise DD without undue stress.

 

Speaking dispassionately about spousal death here (obviously I'd be absolutely torn up in grief as would DH), DH could manage without me after DD is an adult. Likewise the other way around. Even if DD hasn't flown the nest at age 20 or 22, she really should be financially on her own, or at least a very, very minor burden. So I just don't see the need to come into a big wad of cash if we're basically just supporting ourselves.

 

Obviously it's a different story when we're talking about raising a child. Having a child is expensive and additionally can make it more difficult to earn an income. So life insurance is very important for that.

 

As for how much to get, I think it's important to look at the factors. I mean, getting 20 times your income is interesting, because it basically implies the surviving spouse could raise the children to adulthood without getting a job. Could be a consideration if you're a homeschooling mom, for example.

 

On the other hand, it might be overkill. I don't see life insurance as a way to play the lottery. I don't expect life insurance to make me instantly rich or anything. DH and I each have policies that would be about 7 times our current income. Or, put another way, the policies could pay off our mortgage in full and then be about 9 years of living expenses (well, less, because that's not figuring for inflation) at our current, modest situation. Since DD is 6 years old right now, that would be until she was 15. And honestly, I just can't imagine that DH or I would literally just not work for 9 years, so this scenario seems to comfortably get us to DD's adulthood.

 

That's not advice - it's just an example of how I figured out my own situation. Might get you thinking about the factors that are unique to your own family - would you expect to work, would DH expect to work? Would daycare expenses be added to the equation should the worst happen? What debt do you have? What kind of lifestyle do you have? What is the likelihood of more children on the horizon? Are you spenders or savers? For example, if you are a saver, you could reduce your DH's policy to something comfortable but not extravagant. And if DH is a spender, you could put a little more into your own policy to cover that scenario. Anyway, just examples of thoughts.

 

Oh, another point - term life means they lock in a rate for you for the term. You do not have to keep buying it - let's say you have a 20 year policy and after 10 years you win the lottery and you don't feel you need it anymore. No problem, you don't renew your policy and you're done. But if you change your mind again later, then you need to get a new quote and it WILL be higher (because you'll be older and thus more likely to die, because inflation will have raised the costs, etc). The longer the term, the higher the quote, because the more likely you are to die in that period. So, a 30 year term will have a higher monthly rate than a 10 year term.

 

I will say that life insurance is not terribly expensive, considering. You could pay a fair amount if you are looking to become an instant millionaire, but for a modest policy, you're probably looking at $25-50 a month to insure both of you.

post #7 of 37
Quote:
Originally Posted by MacroMama View Post

Suze Orman recommends having 20 times your income.

 

Wow.  That seems really outside of the normal recommendations.  I wonder why that is.

 

As a PP mentioned, we just added up what we would actually want to do with the money.  Since we have our life insurance through DP's work, mine has actually gone down steadily (I am a SAHP and it would be *much* less to replace my functions now than when the kids were much younger).  DP's insurance amount, meanwhile, has gone up because as he makes more money we still rely on that income the same amount.

 

For me, it is basically enough to pay off the house and make a dent in the kids' college bills.  They'd still be living on DP's income which is what we live on now.

 

For DP, it is enough to pay of the house and have me return to school for several years and not have to work while doing so. And a chunk to throw at the kids' education (I would never match DP's earning, so I could earn enough for us for day to day expenses but not fully fund the kids' college or retirement).

post #8 of 37

We got term, 20 years, through our insurance company for our car and house, though discounts don't normally apply with life insurance.  We pay $37 per month (dh is a little older) for 200,000.  I imagine we could get a better deal, but now dh is near 50yo and I don't expect at this point we could get better.  Actually, if you can afford it (it is expensive) disability insurance is more likely to be of use than life insurance--if it isn't covered in your dh's work.  

 

I think that the main shortfall with our policy is that I am insured for 60,000 and that is really, really low but we couldn't afford more.  It is a balance.  Don't underestimate your value as a SAHM.  Dad would have to hire childcare and that would get enormously expensive, so try not to undercut yourself if at all financially possible.

post #9 of 37

Food for thought: Term life insurance lasts as long as the policy lasts. So if you get a 20 yr term policy, at the end of 20 years, that's that. All the premium you put into it is gone (this has changed within a few companies, State Farm is the one I can think of off the top of my head). If during that 20 yr period you or your DH were to die, your life insurance would pay out. 

 

Whole life insurance lasts your whole life. You can look at it more as an investment. You spend 15 or 20 years (depending on the policy) putting money into it and once the policy is mature, you can stop paying on it and leave it to cash out at the time of your death or you can cash it out at full value. I have a whole life policy on my DD (thanks to my parents) that will be mature when she's in high school. She can cash that policy out and use it for college or whatever. You can also cash out a policy before its mature, but like other investments, you won't get the full value. 

 

Whole life is more expensive. But personally, I feel that that is the better route to follow if you can.

 

There are a lot of things that will go into pricing your policy, including tobacco use, current/past health issues, weight and you probably will have a health evaluation including blood draw and urine sample. So an online quote will give you an idea, but you will really need to sit down with an agent and price things out and be aware that depending on your evaluation, price may change.

post #10 of 37

I don't consider whole life an investment. Or, if it is, it's one of the poorest investments you can make. Much better to just take the premiums when you're done and invest it in something else. True, what you pay into term is lost if all goes well. But I think paying more money overall isn't wise.

 

I would consider it for special cases - for example, if I had a child with serious special needs and I know they will need support all their lives, that would make sense. But paying life insurance when my kids are grown and out of the house just seems like throwing good money after bad.

 

Not arguing with you 3xMama, but I wanted to make that case because it's very tempting emotionally to do it, and it sounds like the better deal on the surface. But when you calculate it out, it's only a good deal a minority of the time.

post #11 of 37

Another thing to remember is that Social Security provides survivor benefits to minor children and to the surviving spouse that cares for them--not enough to live on, but enough that you should factor it into your planning.  They send out annual Social Security statements of estimated potential benefits to people over age 25.

post #12 of 37

I agree with Laohaire about term vs. whole life.  One of the ways that I look at it is that it is a safe guard that I've put in place while DD is minor.  I took out a $250k 20-year term policy and I also have a death benefit through my work for about $200k.  All total, this should be more than adequate to assist DH with childcare and other expenses related to DD if I should die while she is a minor.  Like someone upthread said, my DH can take care of himself if I should die, but I want to ease the financial burden to him while DD is still in the house.  20% of my income would be a bit over the top.  I'd rather have a cash reserve in hand through the life insurance policy and then invest in other types of savings. 

 

I get my insurance through Travelers and pay $92 on a quarterly basis.  I personally don't see life insurance as an investment with monetary returns.  What I'm paying for is peace of mind should something happen to me.  It may seem like money just flying out the window, but I sleep a whole lot better at night (now I'm starting to sound like an adverstisement...LOL).

post #13 of 37
Quote:
Originally Posted by 3xMama View Post

Food for thought: Term life insurance lasts as long as the policy lasts. So if you get a 20 yr term policy, at the end of 20 years, that's that. All the premium you put into it is gone (this has changed within a few companies, State Farm is the one I can think of off the top of my head). If during that 20 yr period you or your DH were to die, your life insurance would pay out. 

 

Whole life insurance lasts your whole life. You can look at it more as an investment. You spend 15 or 20 years (depending on the policy) putting money into it and once the policy is mature, you can stop paying on it and leave it to cash out at the time of your death or you can cash it out at full value. I have a whole life policy on my DD (thanks to my parents) that will be mature when she's in high school. She can cash that policy out and use it for college or whatever. You can also cash out a policy before its mature, but like other investments, you won't get the full value. 

 

Whole life is more expensive. But personally, I feel that that is the better route to follow if you can.



I agree with laohaire's assessment of term vs whole life.  From the reading I have done, whole life really makes sense for only a very, very small number of people (generally, the super rich).  Because of tax laws surrounding how insurance payments are treated it can apparently make sense to invest in whole life if you are wealthy enough.  For most people, you are better off taking the difference between what you are paying for term and what you would pay it for whole life and simply invest it yourself.

post #14 of 37

Another for term vs. whole.  Your premium does not just go directly into something like a bank account.  Someone might be able to better explain this, but I know that you can pay into the policy for years and have accrued only a tiny amount of cash value.

post #15 of 37

Here is a quick explanation of why term is generally better than whole:

 

http://www.smartmoney.com/plan/insurance/term-or-whole-life-8011/

 

 

post #16 of 37
Quote:
Originally Posted by laohaire View Post

I don't consider whole life an investment. Or, if it is, it's one of the poorest investments you can make. Much better to just take the premiums when you're done and invest it in something else. True, what you pay into term is lost if all goes well. But I think paying more money overall isn't wise.

 

I would consider it for special cases - for example, if I had a child with serious special needs and I know they will need support all their lives, that would make sense. But paying life insurance when my kids are grown and out of the house just seems like throwing good money after bad.

 

Not arguing with you 3xMama, but I wanted to make that case because it's very tempting emotionally to do it, and it sounds like the better deal on the surface. But when you calculate it out, it's only a good deal a minority of the time.

 

I respectfully disagree with the bolded in most cases. Life insurance isn't just about paying to care for your children in the case of a parent's untimely death. Its also to assist in paying off debt so that doesn't end up your surviving family's problem. So for me, as an only child, if my parents were to die tomorrow, from my understanding I'd end up with the responsibility of paying off their mortgage and credit card bills and whatever other debt they have that I don't know about. Their life insurance is what is going to go to that. If it weren't for their life insurance, I would have no ability to pay that off and I'd end up far worse off than I already am. Sure I can sell the house but I have no idea how long that would take, how much its worth vs how much debt they have, how much it would actually sell for and the house isn't in selling condition. Yes, there is some savings, but not nearly enough to cover their debt. Without their life insurance, I'd be SOL. I don't think you need nearly as much when you no longer have dependents in the house, but I think you do need to be able to cover your funeral costs and debt.

 

And I also just realized that I was thinking about pretty low whole life policies, like $10000 and $20000 policies. These are not nearly the level people need to take out in life insurance and it *would* be a pretty poor decision to pay out the amount of money a premium would be on a $250000 whole life policy (first number that popped into my head). And like I said before, my DD has a whole life policy out for about $10000. Its cheap because she is a child in good health (around $32 quarterly) and it will be paid off by the time she is a teen--I believe it is a ten year policy. So in the event we'd have to use it before its mature, we have funeral expenses covered (hate thinking about it but.....) and she basically has $10000 to put towards college or whatever after she turns 18. Or she can leave it for a rainy day as she goes forth in life. This is what I was thinking about, so I apologize for the confusion!

 

So I change my thought to a term policy is what you probably want to go for and you may want to look at whole life in small amounts for your DC. Yeah. That. shy.gif

 

post #17 of 37


 

Quote:
Originally Posted by 3xMama View Post

 

I respectfully disagree with the bolded in most cases. Life insurance isn't just about paying to care for your children in the case of a parent's untimely death. Its also to assist in paying off debt so that doesn't end up your surviving family's problem. So for me, as an only child, if my parents were to die tomorrow, from my understanding I'd end up with the responsibility of paying off their mortgage and credit card bills and whatever other debt they have that I don't know about. Their life insurance is what is going to go to that. If it weren't for their life insurance, I would have no ability to pay that off and I'd end up far worse off than I already am. Sure I can sell the house but I have no idea how long that would take, how much its worth vs how much debt they have, how much it would actually sell for and the house isn't in selling condition. Yes, there is some savings, but not nearly enough to cover their debt. Without their life insurance, I'd be SOL. I don't think you need nearly as much when you no longer have dependents in the house, but I think you do need to be able to cover your funeral costs and debt.


I just have one question about your comment regarding parents' debt obligations:  did you co-sign on their mortgage and other relevant debts? (this is a hypothetical)  I ask this because in most cases, unless you are a party to their financial obligations, you can't be responsible for their debts.  DH would be responsible for our mortgage because he is a co-signer.  He is also responsible for a portion of my law school loans because he was a co-signer.  I don't understand how non-parties to a contract (especially minors) are responsible for the debt of others unless they agreed to said debt.  The estate may have the responsibility of wrapping up business (i.e. they have an obligation to notify creditors of status), but to hold a child responsible for the debts of the parents when the child was not a signator to the contract seems inherently unfair, and I don't think the law supports that result, at least in my state.  I agree that life insurance is good in the respect that it will cover the incidental costs of wrapping up an estate or closing the debtor's obligations, including the sale of property, and I think that people account for that.  But, I don't agree that a survivor is responsible for the deceased's primary debt unless they were a co-signer and had agreed to guarantee the payment of the debt.  If you can cite examples of where a non-signator was responsible for the mortgage, credit card or other debt of the deceased, I'd like to take a look at it.  I'm genuinely curious.

 

post #18 of 37
Quote:
Originally Posted by CatsCradle View Post


 


I just have one question about your comment regarding parents' debt obligations:  did you co-sign on their mortgage and other relevant debts? (this is a hypothetical)  I ask this because in most cases, unless you are a party to their financial obligations, you can't be responsible for their debts.  DH would be responsible for our mortgage because he is a co-signer.  He is also responsible for a portion of my law school loans because he was a co-signer.  I don't understand how non-parties to a contract (especially minors) are responsible for the debt of others unless they agreed to said debt.  The estate may have the responsibility of wrapping up business (i.e. they have an obligation to notify creditors of status), but to hold a child responsible for the debts of the parents when the child was not a signator to the contract seems inherently unfair, and I don't think the law supports that result, at least in my state.  I agree that life insurance is good in the respect that it will cover the incidental costs of wrapping up an estate or closing the debtor's obligations, including the sale of property, and I think that people account for that.  But, I don't agree that a survivor is responsible for the deceased's primary debt unless they were a co-signer and had agreed to guarantee the payment of the debt.  If you can cite examples of where a non-signator was responsible for the mortgage, credit card or other debt of the deceased, I'd like to take a look at it.  I'm genuinely curious.

 


Correct.  A creditor will seek monies from the estate, but you will not be held responsible for the debt unless you co-signed on their mortgage. 

post #19 of 37
Quote:
Originally Posted by Mulvah View Post


Correct.  A creditor will seek monies from the estate, but you will not be held responsible for the debt unless you co-signed on their mortgage. 


I'm not an expert in estates, but I also think that life insurance would be exempt from what would be considered "assets" of an estate.  I also think that because of the language of life insurance policies, monies due would only be due to direct beneficiaries, and I don't think that creditors would qualify as a direct beneficiary under a life insurance policy.

 

post #20 of 37
Quote:
Originally Posted by CatsCradle View Post


 


I just have one question about your comment regarding parents' debt obligations:  did you co-sign on their mortgage and other relevant debts? (this is a hypothetical)  I ask this because in most cases, unless you are a party to their financial obligations, you can't be responsible for their debts.  DH would be responsible for our mortgage because he is a co-signer.  He is also responsible for a portion of my law school loans because he was a co-signer.  I don't understand how non-parties to a contract (especially minors) are responsible for the debt of others unless they agreed to said debt.  The estate may have the responsibility of wrapping up business (i.e. they have an obligation to notify creditors of status), but to hold a child responsible for the debts of the parents when the child was not a signator to the contract seems inherently unfair, and I don't think the law supports that result, at least in my state.  I agree that life insurance is good in the respect that it will cover the incidental costs of wrapping up an estate or closing the debtor's obligations, including the sale of property, and I think that people account for that.  But, I don't agree that a survivor is responsible for the deceased's primary debt unless they were a co-signer and had agreed to guarantee the payment of the debt.  If you can cite examples of where a non-signator was responsible for the mortgage, credit card or other debt of the deceased, I'd like to take a look at it.  I'm genuinely curious.

 



 



Quote:
Originally Posted by Mulvah View Post


Correct.  A creditor will seek monies from the estate, but you will not be held responsible for the debt unless you co-signed on their mortgage. 


I stand corrected. This is the way it was presented to me, albeit many years ago when I was still in high school I believe. So I probably did not understand it correctly, have twisted it over time, or was not given accurate information (which is possible as my mother is full of financial info that I've found out over the years is incorrect). Oh good grief, I'm sure I've spewed this out to lots of people over time. Bother. duh.gif

 

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